World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Wednesday, June 2, 2010

It used to be the rule of law that individuals who got into a situation where they could no longer service their obligations could file for chapter 7 bankruptcy and discharge those debts via courtroom procedures. Generally, this is no longer an option for most people as the laws were changed to make it harder for individuals to discharge their debts under chapter 7. Instead, most citizens are forced into chapter 13 where a court ordered repayment plan is directed. That legislation, of course, was brought to you courtesy of the banking industry.

And now the State of California is proposing to ban bankruptcies for cities:

NEW YORK (CNNMoney.com) -- A bill that clamps down on municipal bankruptcy filings is headed for Gov. Schwarzenegger's desk, which is bad news for Los Angeles and other cash-strapped California cities.

If the governor signs Assembly Bill 155, it would place a hurdle in the path of filing for Chapter 9 municipal bankruptcy. The bill stipulates that a city may only file for bankruptcy with the approval of the California Debt Investment Advisory Commission, which provides information on debt to public agencies.

"California's taxpayers who rely on public safety, senior, park and library services, as well as those who own and operate businesses in our communities, deserve every effort that state and local government can make to avoid the long-term devastation of bankruptcy," the bill says.

In particular, the bill says it intends to protect retirement pensions and health benefits for public employees, which would be disrupted and renegotiated in the wake of bankruptcy.

This could have a direct impact on the state's largest city, Los Angeles, which is facing a huge budget shortfall.

L.A. is projecting that city revenues will fall 11.2% short of projected expenses in the current fiscal year, which adds up to a deficit of $492 million, according to Pew Charitable Trusts, a non-profit research organization on public policy. The city had a shortfall of 12.1% the prior year…

Ah yes, this bill is meant to “protect” retirement accounts and is in favor of the people, LOL. I can guarantee you it was written by bankers to benefit themselves.

Any time a debt is discharged via bankruptcy the issuer of the debt sustains a loss. Of course knowing that you may sustain a loss would make you more cautious with whom you lend your money to, right? So from my perspective these types of changes not only don’t protect the people, they cement risk into place. They also fail to allow for swift removal of debt, and that means an anchor will continue to pull down the economy for quite some time should laws like this be enacted in this debt saturated environment.

Once again the banks can’t seem to take a loss, that is a systemic problem that ultimately ensures the debts don’t get cleared out and that is exactly why the debt money system is destined to fail. This type of law is not congruent with the nature of math. If you follow the supporters of this legislation you will find people who have relationships with the bankers.